Exemption of Tax Treaties Concluded by the Philippines from Income Tax

March 3, 1988 BIR RULING NO. 068-88 24 000-00 068-88 Gentlemen : This refers to your letter dated December 15, 1987 requesting confirmation of your opinion to the effect that in accordance with the tax treaties concluded by the Philippines with the following countries viz: Sweden, Denmark, Singapore, Canada, France, United Kingdom, Pakistan, Australia, Japan, Belgium, New Zealand, Finland, Indonesia, Austria, United States of America, Thailand, West Germany, Malaysia and Korea, no income tax shall be withheld from service fees, either in foreign or local currency, which you will pay to your foreign service contractors which are residents of any of the aforementioned countries, covered by service contracts, provided the following conditions are met. 1. That the foreign contractor does not have a permanent establishment in the Philippines, as provided in each tax treaty; 2. That the foreign contractor does not have a building site or construction or assembly project or supervisory activities in connection therewith and that such site, project or activity continues for a period that does not exceed 183 days within any twelve (12) month period. 3. That the furnishing of services, including consultancy services by a resident of one of the treaty countries, through employees or other personnel, within the Philippines is for a period not exceeding 183 days. In reply, please be informed that your opinion is hereby confirmed. The tax treaties concluded by the Philippines with the aforementioned countries clearly provide that business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. Considering, that as represented, your foreign service contractors do not have a permanent establishment in this country, the service fees to be paid by you to your foreign service contractors are not subject to tax in the Philippines. cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner